Finally got AVCHD to work in Premiere Pro but have a few questions

I was finally able to get AVCHD .mts files to work in Premiere Pro without having to transcode. I do have a few questions though.

my cameras film in 4:2:0 color space. I'm guessing that's 8 bit. Is that correct? If so how come when I try color correcting AVCHD .mts file the picture becomes pixilated? If I do transcode which I did as a test where I transcoded the same .mts file to ProRes 422 the same color was applied to that ProRes file and it wasn't pixilated. Certainly there is no way the 4:2:0 color space is getting better when transcoding right? Why would color filters in ProRes look better than .mts when the color space is the same?

I also did a test and set up my sequence setting to render out to ProRes 422 using the .mts footage files. Is this a good way of doing this or should I actually still be transcoding? It's nice I can use AVCHD .mts natively now without importing problems but the color is what confuses me.

If you convert the footage to ProRes, it's now 10 bit. No, the footage suddenly won't look like it was recorded 4:2:2 10 bit...it'll still be an 8-bit 4:2:0 source. But when you push the colors...you are grading in a 10-bit 4:2:2 space...it won't fall apart as quickly as grading in a 4:2:0 8-bit space will.

Things fall apart sooner if you grade in 8-bit vs 10-bit. You'll be grading in a 10 bit space. HOW? Well, you saw for yourself what happens. I don't know the exact science around it, I'm a user, not a programmer. I just know what happens when you do things.